United Overseas Mulls Hong Kong Lure as China Builds Trade Zones

China’s plans to develop free-trade
zones in Shanghai and Guangzhou may be dimming the attraction of
banks in Hong Kong for foreign acquirers such as Singapore’s
United Overseas Bank Ltd. (UOB)

The zones may make Hong Kong “less relevant” in coming
years, Citigroup Inc. said in a report today, citing comments
made yesterday on a conference call by officials at UOB,
Southeast Asia’s third-largest largest bank. They were
responding to a question about UOB’s interest in bidding for
Hong Kong’s Wing Hang Bank Ltd. (302), according to James Antos, an
analyst at Mizuho Securities Asia Ltd., who was on the call.

“Management repeated that UOB is not going to overpay for
any acquisition and in the case of Wing Hang Bank, the
longer-term franchise value might not be what it is right now,
considering that China is developing the Shanghai Free Trade
Zone,'' Antos wrote in an e-mail today.

Singapore banks are mulling overseas expansion plans to
offset the lowest lending margins in Southeast Asia. Oversea-Chinese Banking Corp. is considering a bid for Wing Hang, a
family-run Hong Kong lender, people familiar with the matter
said on Oct. 24. Samuel Tsien, OCBC’s chief executive officer,
declined to comment on the bid at his bank’s third-quarter
results briefing on Nov. 1.

Banks in Singapore have an average net interest margin of
1.77 percent, according to data compiled by Bloomberg. While
that’s higher than Hong Kong’s 1.73 percent, the Chinese city is
seen by lenders as a gateway to the mainland and a way to
benefit from increasing global use of the yuan.

Higher Profit

“Hong Kong will need to consider the role the Shanghai
Free Trade Zone will have in the longer term,” Jimmy Koh, UOB’s
managing director of investor relations, wrote in an e-mail to
Bloomberg News. “We feel that the Shanghai FTZ is still in its
early stages and has a complementary role in developing trade
flows between Greater China and the rest of the world.”

UOB’s net income rose to S$730 million ($587 million) in
the three months ended Sept. 30 from S$707 million a year
earlier, the lender said yesterday. That beat the S$707 million
average of nine analysts’ estimates compiled by Bloomberg.

Shares of UOB gained 0.6 percent to S$20.93 at 12:04 p.m.
in Singapore trading, compared with a drop of less than 0.1
percent for the benchmark Straits Times Index.